The U.S. economy stalled in the first quarter, expanding by just 0.2 percent, hurt by weak exports and a drop in business investment, according to a report released Wednesday by the federal Bureau of Economic Analysis.
The figure fell short of analyst’s predictions of 1 percent growth and well below the previous quarter’s 2.2 percent growth, indicating that the U.S. economy is losing momentum, undermining President Obama’s recent efforts to tout the economic recovery.
The slowdown reflected lower consumer spending, declining exports, lower business investment and less state and local government spending. The declines were offset by lower-than-expected imports, inventory build-ups by private business and an increase in federal spending.
Major contributing factor to the declines were the delay in exports caused by the West Coast ports dispute, the prolonged cold winter and a decline in energy prices. Jason Furman, chairman of the White House’s Council of Economic Advisers, repeatedly cited the weather as a principle factor.
“[W]inter weather likely reduced both consumption and investment, contributing to this quarter’s below-trend output growth. The historical relationship between weather and first-quarter growth suggests that weather may have reduced annualized growth by about a full percentage point this quarter,” Furman said.
David Ader, an analyst with CRT Capital Group, said the report was “much weaker than expected” and argued that blaming the weather was a dodge. A bigger concern, he said, were the “nothing to write home about” numbers for investment, exports and personal consumption. He noted in particular that spending on wells and mines fell 48.7 percent in the first quarter, a symptom of the overall decline in energy prices.
“We knew the causes, so while softer-than-expected, this is a surprise nonetheless,” Adler said.
Personal income rose $148.6 billion in the first quarter, a slight increase from the previous quarter’s increase of $146.9 billion. The increase was not a boost in wages and income, though, but rather an increase in government social benefits.
Consumer spending rose by 1.9 percent, down from 4.4 percent in late 2014. Instead, people are saving more, with 5.5 percent of disposable income being tucked away, up from 4.6 percent in the previous quarter.
Business investment hit a sharp decline, falling by 3.4 percent after having risen by 4.7 percent in the previous quarter. Investment in nonresidential structures fell 23.1 percent, investment in equipment by 0.1 percent. That was partly offset by a 7.8 percent increase in intellectual property products. Home investment increased 1.3 percent, down from a 3.8 percent rise in the previous quarter.
Overall, exports of goods and services fell by 7.2 percent, after rising 4.5 percent in the previous quarter. Meanwhile, imports of goods and services rose by 1.8 percent, but that was significantly down from the previous quarter’s 10.4 percent rate. Furman cited the decline as proof that Congress needs to advance the president’s trade policy agenda.
“This report underscores that the U.S. economy is directly affected by the global economy, making clear the importance of advancing Trade Promotion Authority [legislation] in Congress so the pPresident can take further steps to open up markets abroad to increase U.S. exports and expand opportunities for the middle class,” Furman said.
